Council meeting Government Bills:2nd Reading- Financial Reporting Council Bill 2021


MR CHAN CHUN-YING (in Cantonese): President, I am a member of the Bills Committee on Financial Reporting Council (Amendment) Bill 2021, and I support the passage of the Financial Reporting Council (Amendment) Bill 2021 (“the Bill”). The Administration has stressed that in this regulatory reform relating to the accounting profession, the objective of vesting regulatory powers with the Financial Reporting Council (“FRC”) (to be renamed as the Accounting and Financial Reporting Council (“AFRC”)), which is independent from the trade, is to ensure impartiality. It is the major international trend on accounting profession regulation. Moreover, this reform will be carried out under a step-by-step approach. The relevant plan has been in place since the establishment of FRC, and the Government has completed extensive consultation work. Of course, the accounting profession has expressed some concerns, but as I have noted, members of the Bills Committee in general support the Bill after the Government’s explanation. As a matter of fact, the present function of FRC is simply to exercise regulation over the auditors of Hong Kong listed companies, while other auditors are monitored by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). I believe the Government hopes that FRC can become qualified as an independent audit regulator in the international arena. As an independent body, FRC has to participate fully in the regulation of the accounting profession before there will be the chance for Hong Kong’s relevant regulatory regime to gain international recognition.

At present, many advanced economies in the world are members of the International Forum of Independent Audit Regulators, including New York, London, Tokyo, Frankfurt, Luxembourg, Paris, Singapore and Sydney, but Hong Kong is not yet qualified. Our audit regime is still unable to gain recognition from these jurisdictions.

This reform empowers FRC to issue practising certificates to certified public accountants (“CPAs”), and process the registration of CPA firms and corporate practices; expand FRC’s powers of inspection, investigation and discipline over auditors; and expand FRC’s oversight powers to cover HKICPA’s original functions, including examinations, mutual recognition of qualifications, continuing development requirements and training. It is a significant step towards receiving international recognition.

Regarding the Bill, I am concerned about the transitional arrangements and implementation details of the proposed reform. As the commencement date and details of the legislation are not expressly provided in the primary legislation and will not be confirmed until the Government tables the subsidiary legislation next year, members have requested the Administration during the scrutiny to provide a general timetable for the commencement of the legislation, including an approximate commencement date of the new regime and transitional arrangements for the transfer of regulatory powers from HKICPA to AFRC.

The Administration has explained that the relevant subsidiary legislation will be tabled to the Legislative Council as soon as possible next year. After formulating the guidelines and handling other administrative work currently in progress, FRC will develop a cooperation mechanism with HKICPA. The new regime will formally commence when all such preparatory work is completed.

In addition, I have raised the following question at the meeting: in the future, when FRC is responsible for the issue of practising certificates to CPAs, the application for and renewal of the practising certificate shall meet the requirement that the applicant is a “fit and proper person”. However, the original legislation did not mention by whom such criteria would be set. Neither did the provisions at that time explicitly empower AFRC to determine the particulars of the continuing development requirements for CPAs, including assessment and testing standards and the number of hours of continuing professional development. I am thankful that these queries have been clarified one by one by the Administration subsequently at the meeting.

Regarding the proposed expansion of AFRC’s powers, I have also noted many good suggestions outside. Among them, an article written by Prof Terence CHONG is very insightful. Firstly, he opines that FRC should be renamed as “Auditors Regulatory Committee” to indicate its functions in a simple and straightforward manner. Compared with the present proposal of renaming it as AFRC, his suggestion seems more down-to-earth. The second point is about the financial arrangements. At present, based on the user-pay principle, FRC’s sources of funds are the Securities and Futures Commission, HKICPA, Hong Kong Exchanges and Clearing Limited and the Companies Registry. Prof CHONG finds it unreasonable for a regulator to be funded by its regulatees. Worried about the presence of a role conflict, he proposed direct allocation of funds by the Government. In this regard, I have raised a similar viewpoint in the Bills Committee on whether it is appropriate to collect fines from the regulatees. However, in the case of the banking industry, the Hong Kong Monetary Authority also charges the banks a regulatory fee. So I know it is hard to change the existing mechanism.

He has also brought up the issue of regulation over non-local auditors. In the future, if AFRC has internationally recognized qualifications, it may enter into mutual agreements with other jurisdictions with similar qualifications and monitor each other. However, Mainland companies listed in Hong Kong are under the purview of Mainland auditors. Such being the case, it will be difficult for AFRC to exercise regulation. It will be difficult, be it for HKICPA or AFRC, to monitor Mainland auditors. Hence, it is hoped that AFRC will first obtain international qualifications. After that, in the long run, consideration should be given to strengthening mutual monitoring between the Mainland and Hong Kong.

In addition, Mr Kenneth LEUNG, the former representative of the accountancy constituency in the Legislative Council, has put forward his advice in the newspaper. He has raised a few points, including the proposal that a study should be conducted on the establishment of a working group at the transitional stage when most of the investigative and disciplinary functions of HKICPA are transferred to AFRC, so as to ensure smooth transition and seamless handover. The future regulatory approach of AFRC should raise the standards of the profession and protect public interest, and the accounting profession should not be placed in a regulatory environment which is more onerous and hostile than before. Lastly, pointing out that the current investigation officers of HKICPA have sufficient relevant experience, he called on AFRC to consider them during recruitment. The propositions of these two people, in my opinion, can well serve as reference. Although some of them have already been discussed at our meeting, I wish to call on the Government again to pay heed to them.

President, I so submit.